The current economic world is one with little growth and low dividend yields. Most businesses creating any sort of decent growth are trading at pretty high valuations.
But, there are a few businesses out there that are generating earnings growth and increasing the dividend like clockwork like these three which can outperform your job’s earnings growth:
Rural Funds Group (ASX: RFF)
Rural Funds aims to increase its distribution by 4% each year. It has achieved this each year since it started paying a distribution in 2014.
The farmland real estate investment trust (REIT) has a number of ways it can grow its rental income, profit and distribution. It can make accretive acquisitions, it is using its 20% retained profit to invest in productivity improvements at those farms and it benefits from rental increases built into the contracts.
It owns an appropriate amount of water entitlements and has a diverse portfolio of farm types including cattle, cotton, macadamias, almonds and vineyards.
Rural Funds currently has a distribution yield of 5.9%.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is currently increasing its half year and final dividend by 1 cent each result. That may not sound like much but it’s comfortably more than inflation.
The dividend could be higher, but Soul Patts’ underlying investments like Brickworks Limited (ASX: BKW) are keeping some cash for re-investment and Soul Patts itself is keeping some of the net cash paid to it for funding growth opportunities. It’s this strategy that has allowed Soul Patts to materially outperform the market over the long-term.
The fact that it’s invested in fairly defensive and uncorrelated investments means that its dividend could keep rising sustainably for a very long time.
Soul Patts currently has a grossed-up dividend yield of 3.7%.
Altium Limited (ASX: ALU)
One of Altium’s stated aims is that it’s “focused on returning profit to shareholders” meaning it’s “committed to growing dividends each year”.
The electronic PCB company may generate a lot of dividend growth over the next decade with the company having a strong balance sheet, it’s debt free and produces excellent cashflow each year compared to its profit. If profit keeps growing at more than 20% a year I expect the dividend will keep growing by a solid percentage each year too.
The starting yield of 1% is obviously low, but the dividend is likely to grow at a very fast pace during the 2020s.
For purely income it seems Rural Funds is the most attractive option with a good starting yield, but Soul Patts is the gold standard for growing dividends which is why it would be my pick for clockwork dividend growth.
These 3 stocks could be the next big movers in 2020
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Motley Fool contributor Tristan Harrison owns shares of Altium, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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